- Focus on the US will continue this week.
- Fed speakers and the second US Presidential debate will be key events.
- ECB speakers will also garner some interest in a week relatively light in data.
Focus over the weekend was firmly on the US and the latest US Non-farm Payrolls (NFP) report. This US-centric theme will continue this week with the second Presidential debate, US Federal Reserve meeting minutes released on Thursday and a number of US Federal Reserve members speaking during the week.
The US Non-farm Payrolls (NFP) report, a barometer for the US labour market, initially disappointed as the number of jobs claimed were lower than expected (165k gained vs. 171k expected) and the unemployment rate ticked slightly higher. The NFP report and expectations for future Federal Reserve rate moves are closely related. Among other things, the Fed is looking for solid evidence that the US labour market is returning to full employment before lifting interest rates. However, looking closer at the details, the report was more positive. Firstly, the August’s results were revised higher from 151k to 167k. Secondly, the lift in the unemployment rate was largely due to a lift in the participation rate, which is a positive sign. Thirdly, the broader U-6 unemployment rate (unemployed, underemployed and discouraged) held steady and is near its lowest level since early 2008. As a result, the initial disappointment soon dissipated and market pricing for a December rate hike lifted to 66%.
Despite the positive NFP result, attention will shortly be diverted away from Fed rate hikes towards the second US Presidential debate. Screening at 2pm today NZT, the second debate is likely to be watched by millions. It was concluded that the first debate was won by Hillary Clinton and her ratings in polls have increased since. Given the possible economic implications from some of Trump’s proposed policies, global markets are likely to remain on edge until Americans cast their votes on November 8.
Once the debate and analyses end, attention will return to the outlook for US interest rates, especially with the number of US Fed speakers this week. These speakers include US Fed Chair, Janet Yellen who is due to speak on Friday as well as Dudley, Evans, George, Rosengren and Kashkari. Finally, Thursday morning’s US Fed meeting minutes cements what will be a US-centric week. As always, the minutes will be closely scrutinised for any clues on the likely timing of the next rate hike. We continue to expect the Fed will lift interest rates in December.
Outside of the US there are few major events happening. Key interest elsewhere will likely lie in Europe where a number of European Central Bank members are due to speak. Comments over the future actions of the ECB will be closely scrutinised (especially if they are in relation to the tapering off of asset purchases). Elsewhere, including New Zealand, the majority of data releases are second-tier and will be unlikely to cause substantial market movements.